Austerity Is Neither a Choice Nor an Option

The current (and fashionable) universal anti-German sentiment stems from the belief that Chancellor Merkel is singlehandedly imposing austerity measures on struggling European economies. That is, of course, a fallacy, insofar as what is presented as austerity is, actually, the reduction of deficits to viable levels, which requires a reduction in government spending combined with higher tax rates. Such reduction is not the result of outside pressure, but rather the consequence of the unsustainability of these economies' enormous foreign debts.

It seems that very few people realize that governmental benefits and a large part of what was considered the welfare state were financed by domestic taxation and external loans and not by money growing on trees. There always exists a roof on the amount of money a government can extract through taxation and, of course, one cannot find willing lenders, when one has a history of overspending. Therefore, the money sometime ends - that is not austerity by choice, particularly when it comes to States that no longer possess a national currency and can no longer print inflationary money, as they did in the past.

So, the demand actually is for Germany and other economies that have managed to bring their finances in shape either to consent to the creation of a Euro-bond (that is some pan-european instrument of lending) or to lend money themselves to the struggling economies, purportedly in order to sustain demand and thus avoid recession. The actual effects of such an action are quite the opposite of what its proponents would have hoped for, as Greece demonstrated. With government spending soaring, with deficits consistently higher than 5% of the GDP, Greece enjoyed only anemic growth. In fact, in the last two years before the official crisis (2008 and 2009) Greece had deficits of 8 and 15% respectively but was already in serious recession (0,5 and 3%). Therefore, the amount of government spending was not indicative of the growth rate of Greece and the continuing recession of the Greek economy cannot be attributed to (supposedly) limited government spending.

Therefore, not only can the european economies sustain a high level of deficit spending, it is also unwise for them to do so. Never mind that it is the newer generations that shall bear the burden of repaying the loans their parents and grandparents took for a false sense of prosperity; eventually it is even other people's and nations' money that will run out.

(first published at the sister blog, Reporting from Athens)